Group Open Research Project: Global Banking Sector/Industry BARLCAYS
THIS IS MY PART THE FOUR BULLET POINTS
- Specific recommendations for the various Strategy Levels;
- Impact of proposed recommendations on Mission/Vision; organisational structure, organisational processes, organisational culture;
- Impact on Business System;
- Brief implementation plan, including a timeline (short-term, medium-term, long-term).
THIS IS THE BREIF
You work as Associate Consultants for a large Investment Advisory consultancy firm, specialising in the Financial Sector. A number of important clients seeking to develop any investment opportunities in the Banking Sector/Industry have approached your firm – (this means any commercial, retail, private, merchant or investment bank or building society – it does not mean insurance companies, pension funds, asset management companies, etc.) for advice. Your Team Leader has tasked each Syndicate Group to carry out an analysis of the Banking sector on behalf of each client.
It is your responsibility to do the necessary research in order to answer your assignment brief, given below. So this will require you to do appropriate secondary research to underpin your report. There is no requirement or expectation that you undertake primary research in order to complete this assignment.
Your brief is to produce a written report with the following requirements:
- Business Report style including: Executive Summary; Table of contents; List of tables/figures; type 12 font (Gill Sans MT); 1.5 spacing.
WHAT I AM AIMING FOR
- All learning outcomes and task specifications have been achieved to an exceptionally high standard (according to the level of study).
- The outcome of the assessment task is presentable in a professional context and may extend practical or theoretical knowledge in the fiel It displays an exceptionally high level of understanding, evaluation, insight, analysis, reflection and/or criticality (according to the level of study), and connections are developed both within and beyond the task set.
- The work’s organisation, structure and presentation are developed to an exceptionally high standard.
Executive Summary
We first started by an overview of the banking industry in order to set the actual environment for banks nowadays. A regulatory environment that has changed and evolved over the past few year putting some boundaries to the bank’s activities. A PESTLE and 5 porter’s forces analysis have been conducted in the first part in order to assess the macro environment affecting this particular industry in North America but also in the rest of the world as some global factors are highly related to the banking in the north American region. The results of these two analysis showed that there are many factors threatening this industry including the political and environmental regulations that have a negative effect on banks profits. However, despite the amount of threats that banking industry may face, the digitalisation and technological area we are in nowadays raises opportunities for banks to offer more customized products for its clients and respond in a better way to their demands. Here again the rivalry among the banking groups is so high due to the competition and the low diversification of products can represent a threat for some banks. Barclays have to take into account all of these factors to stay competitive in this North American market.
The internal analysis part showed us…
As for the financial analysis …
- Introduction
Barclays is an English bank that operates in… in this paper we will focus on the analysis of this bank in the north American region and its strategic orientation.
We will first start by conducting a macro analysis of the banking industry using some strategic tools like the PESTLE and the Porter’s 5 forces to explain how the macro factors affect the banking nowadays and what are its threats and opportunities. Then we will do a more specific analysis of Barclays bank by doing its internal analysis where …
- External Analysis
2.1 Banking industry overview
2.1.1 Industry structure
The banking industry has known some ups and downs following the subprime crisis, but nowaday this industry’s growth is at … and has a value of …
The North American market for the banking industry represents a little bit more than 11% of the global industry’s value as we can see in this figure.
The North American banking industry’ growth is declining with a 5.6% growth in 2015 compared to 7.7% in 2014. This decline is also seen at a more global level. Indeed, the global industry’s growth in 2014 was 6.2% while in 2015 it has declined to 5.4%. However, the market predicts an additional decline for the north American banking industry to be at and stay around 4% from 2017 to 2020 but its value to increase by 21.9% for the same year. We can say that this market is declining and in stagnation despite its increasing value.
We can observe that the credit banks have the largest value in this industry in North America as well as in the rest of the world, having a 67.8% share in North America.
USA is the country that have the highest industry value of the north American region, its share accounts for 78.6% of the total industry value and this can be explained by the fact that this country have the world’s largest banks like JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and U.S. Bancorp that now control nearly 45% of the $15.3 trillion in assets held by all US banks, according to data compiled from SNL Financial. However, banks in the US are not independent, they are highly regulated and influenced by the federal and state government who also monitors interest rates, a huge factor for bank’s profitability. Canada in the other hand, have the safest banking industry in the world according to the world economic forum 2010. North American banks have a great worldwide exposure as we see in this graph, with JPMorgan being one of the biggest banks in the world according to office of financial research.
North American banks are divided in two types depending on their geographical scope. The regional banks that serve within a nation for local clientele, and the major banks that have an international scope, some of the top banks in North America being JPMorgan chase, Citigroup and Bank of America and Bank of Montreal.
Since the 2008 global financial crisis, with the epicentre being Wall Street, the trust in the worldwide banking sector dropped significantly. American personal and corporate banking system took a huge hit after the defaults of the subprime mortgage loans.
After a successful past decades, the global reputation of the banking sector was very good. The strength in the North American banking industry can partially be thanked to the strength of the US dollar as a currency. The correct fiscal policies have managed to sustain and strengthen the currency making sure the Northern American banking industry will stay significant on a global scale. In addition, the Canadian banks managed to deal well with the financial crisis, as they were able to control the volatility of the markets and minimise the risk and impact on their domestic market.
With the Asian Pacific, European and North American markets being interlinked, the banking sector has become very volatile and interdependent.
The global crisis had a negative impact on profit growth even during the post-crisis period, even though banks have known a substantial growth as we can see in figure 2, the rise of regulation and the lack of trust from consumer are one of the factors impacting the low performance of north American banks which means that banks are still recovering from their past mistakes.
Banks have now entered a new regulatory age as a consequence of the subprime crisis with more restrictions, imposed standards and enhanced regulations. We can see this by the implementation of the Dodd-Frank wall street reform and consumer protection in 2010 that led to the creation in 2011 of the consumer financial protection bureau (CFPB) in the US. Risk management as well as fraud protection are now among the most important activities led by banks. All these new regulations will of course have an impact on the organisational structures of banks that are now more controlled by external agencies. Credit banks being the most affected by these new regulations protecting the customers as they won’t be as free as after the abolishment of the glass steagall act by Clinton, act that limited certain activities of banks in the US.
2.1.1 Market development
The rising competition of digitalisation of the banking sector as well as cyber security will play a large role in the future development of the banking industry sector.
Some banks are searching for new sources of growth and others are still trying to manage ongoing volatility post 2008 crisis.
New financial firms have emerged with this financial crisis, the Fin Techs that are based on new technologies. Their number grew up by 26% as well as their global investments according to Hollandfintech 2015. This is the future of banking as banks are already collaborating with these financial institutions to overcome security problems. Here we can see the investments on fintechs of the major banks in millions of dollar.
2.2 PESTLE Analysis (Add examples)
The Pestle analysis is done in order to assess what are the major macro economic factors that may affect our industry. We conduct this analysis in a regional basis, focusing on north America but including some global factors that may affect our industry such as the brexit of basel III agreement, as some of the global factors have a direct effect on some banks and their businesses since all market are linked and some of the major banks banks operate internationally.
Political Factor: High regulations by the governments, NAFTA trading agreement means that it is easier to trade between NA countries, quite stable countries but with high terrorism threats, federal reserve decides what will the interest rates will be, implementation of different laws and legislation protecting the consumer and controlling the bank’s activities (Basel III, Dodd-frank wall street reform), BREXIT that may affect international business for UK banks or global banks based in the UK.
Mainly a threat for banks because of high political tensions and regulations.
Economic Factor: GDP growth of 2,9%, Growing FDI for the North American region of 430 billion$ (2015 – WorldBank data), limited credit accessibility due to implementation of Basel III, less than 3.5% interest rates according to IMF and strong currencies, low and decreasing unemployment rate at 6% (IMF).
Low interest and strong currency represents an opportunity in this industry
Socio-cultural Factor: 560 million people (8% of worlds population) good market share, Gini index is around 0.40 (WorldBank data) so there is high income inequality, very low population growth (0.7% in 2015 – WorldBank data) so there is an ageing population not good for banks because they don’t have incomes, changing customer preferences and trust issues.
Ageing population can be a major problem for banks because they won’t generate any revenues so less money for banks in the future
Technological Factor: Fintechs, Customers more digital driven, Digitalisation of financial services, contactless payments, digital banking, more accessibility to internet and growing internet users (75% in 2014 – WorldBank data).
Great opportunities for banks to restart their product lifecycle and to innovate, offer different products for the clientele.
Legal environment: More restrictions and control, Fraud and background checks, anti money laundering, activities transparencies.
Banks are more monitored and can be a threat because mistakes can cost them a lot.
Environmental factors: less paper more digitalisation of bills and information, shareholder wants more ethical behaviours and more justification, less CO2 emissions, solar energy utilisation.
Can be an opportunity to be more developed and cut costs
This analysis shows us that in each factors banks in North America faces threats but also more opportunities to grow and develop themselves.
2.3 Porter’s 5 Forces for the Industry (Add examples)
This analysis is conducted in order to identify the attractiveness of an industry in a special market. Here we will see if the banking industry is an attractive industry to be in, in North America or are the threats so high that it is better not to enter this market.
Entry Barriers:
High regulated environment so high retaliation if these laws are not implemented correctly
High capital requirements and initial investments (…)
Low customer reliability on new bank so brand image and identity very important due to the decrease of customer’s trust in banks.
Possible vertical integration by some companies
High entry barriers so the threat of new entrants is weak
Rivalry:
Intense competition with the major players having 59% of the market share, some of the competitors operate in several segments
High number of competitors as in this industry operating in different segments like investments and commercial banks, insurances and credit institutions
Low product differentiation possible as all products offering are quite the same from a bank to another
Intense price competition on several products offering
Industry growth at 5.6% but declining so industry in its maturity
Tendency of mergers and acquisition from the big players
Strong competitive rivalry due to the presence of large and competitive banks in the market
Substitutes:
Non-financial institutes offering alternative payment solutions (apple pay, PayPal) sometimes cheaper
Low switching costs
Alternative banking services (loans from family and friends, cars, jewels, pawnbroker)
Low threat of substitutes because people are risk averse and for large amounts will choose banking solutions
Buyer power:
Many buyers from different segments, individuals or corporate
High switching costs for corporate customers and clients who have credits and mortgage
Very well informed about competition
People tend to be loyal to their bank
People are very technology oriented, want more value and personalization
More price sensitive, more risk averse, they don’t trust banks like before
Buyers have a moderate bargaining power because if they are not satisfied with their banks, they cannot switch easily but will do it if there are cheaper alternatives.
Supplier Power:
Customer capital deposit, Mortgage securities and loans, loans from other financial institutions
Supplier of IT solutions for banks that are very complex so banks cannot switch easily suppliers as they are not many and the employees get used to a certain device and system so it will be costly for banks to change suppliers while they can change banks as there are more banks than IT suppliers.
Supplied items and materials can have an impact on brand reputation
High supplier power because they can stop “refuelling” the bank at anytime.
In conclusion it is a large industry but not interesting to be in and hard to penetrate due to the high competitiveness and bargaining power of some buyers and suppliers but mostly due to the high regulations imposed on the banks nowadays. For existing banks in the market it can be interesting to stay in because of the opportunities to grow and offer new technology products and services for its customers. Even with the slow growth of the market there is a window to reinvent the product lifecycle and increase the growth of the market due to the innovations. In the long term the industry can be more attractive as people will regain trust in banks and the regulations will be integrated and managed in the well being of banks but especially because the digitalisation of products and services will allow banks to increase their profitability with these new products/services.
2.4 Industry Life Cycle (Add examples)
According to our previous analysis we can say that the banking industry in north America is at its maturity because of its slowing growth rate, its major player that represents the strong buyers, but also for its high entry barriers.
But Nowadays technologies let a window open for a future growth and will allow banks to kick start their products lifecycle through innovation.
– Examples
– Other regions in the ILC
2.5 Strategic Groups and Competition
We will base our analysis of the strategic groups on two major components: Pre-tax profits and Asset structure of the major banks in north America.
We came up with four major strategic groups that are:
– The global banks (big players) operating globally who have lots of assets with high profits like JP Morgan chase
– The National banks, that operate within a nation with quite lots of asset but a with lower profits like Bank of America of Royal bank Canada
– The Medium banks, they operate mostly on a regional basis like American Express company who operates in North America that have some asset with substantially high profits
– Finally, the small banks, with low profits and very little assets like the credit unions that have more or less $25 million in assets with very little profits.
2.6 Opportunities and Threats (Add examples)
Main threats:
CyberCrime
Tax evasion
Budget restrictions
Technological financial institutions.
Opportunities:
Digitalisation
Meeting the future customer needs
Product customization/personalization
2.8 Key trends and drivers (Examples)
Key trends for the future are clearly to be seen in digitisation. People want a faster, easier and more efficient access to their banking system. The efficiency as well as looking to work in smaller buildings and allowing less CO2 emissions is a definite trend banks are looking at.
From a NA standpoint, the bank will need to depend on the Fed’s decisions on the rate hike as well as preparing for the impact of the presidential elections. Outcomes from both events will play a role to drive the banking sector in NA either in a positive or volatile manner.
